Many target-date series end in a static retirement income fund, but they don't always produce a lot of income and they may have a range of risk profiles, says Morningstar analyst Josh Charlson.

on.aol.com

If you are one of the growing number of people who are worried about what the future has in store for you and whether you can pay the bills it will bring, you'll want to know that some Washington lawmakers were thinking good thoughts Wednesday for you.

Photo by Mark Wilson/Getty Images

If you don't have a public or private pension, or you haven't saved enough over your working life to have a big retirement nest egg, or your expected payout in monthly Social Security benefits won't stand the test of time, the proposal from President Obama in his 2014 State of the Union Address in February to create a retirement plan for low and middle income workers is getting some air time in Congress.

Sen. Brown oversaw the second in a series of hearings on the current retirement crisis and Social Security’s fundamental role in retirement security called "Retirement Savings for Low-Income Workers," that featured Mark Iwry, the architect of the Administration’s myRA plan and Senior Advisor to the Secretary of the U.S. Treasury Department.

"For many Americans, the traditional three-legged retirement system of pensions, personal retirement savings, and Social Security is no longer working," Brown said in prepared remarks to the subcommittee. "For too many, this three-legged stool lacks stability."

Social Security provides 84 percent of the retirement income of older Americans in the bottom 40 percent of the income distribution, Sen, Brown said, as the annuitized income of Social Security remains a safeguard of retirement security for working class families.

The private retirement system isn't working for about half of American workers, nearly 75 million of whom do not have an employer-provided retirement plan or other opportunity to save for retirement through workplace contributions.

Sadly, nearly half of working households do not own any retirement assets, he said, noting that the median retirement account balance is $3,000 for all working age households and only $12,000 for households nearing retirement.

The gap myRA seeks to narrow exists because tax preferenced retirement accounts, which are concentrated among the wealthy, create income streams from these private retirement accounts. Households in the top fifth of the income distribution account for 72 percent of IRA and 401(K) assets, he noted, compared to the average disbursement among all seniors of just over $1,500, while only 19 percent of senior households receive any disbursements at all.

A central question discussed in the hearing today is whether the benefit is adequate for low-income workers? Sen. Brown said he has reason to believe that it may not be. The news that 61 percent of low-income families are at risk of not having enough income to maintain their standard of living in retirement, according to the National Retirement Risk Index, published by the Center for Retirement Research at Boston College, should be shocking on its face.

It doesn't take a leap of imagination to understand that failing to maintain standards of living for Americans who are the target audience of myRa means the difference between a modest retirement and living in poverty.

One shorthand rule of thumb that determines whether retirees will have sufficient income to cover their expenses is to understand that if you are in the bottom income quartile, you probably won't have enough money to cover your expenses in retirement. CRR predicts that just 16.8 percent of low-income retirees will have enough money, compared to 86.4 percent in the highest quartile.

Social Security has been under siege for decades from fiscal hawks who want to reduce benefits, raise the retirement age, or both. Even President Obama has talked of acquiescing to these plans, most recently when he's tried to reach accommodation with House Republicans in a so-called grand bargain. But with no hopes that a grand bargain will be reached because the White House has said all along that such a deal must be balanced with higher revenues from the nation's wealthiest, the president's recently submitted budget has eliminated Chained CPI, a capitulation Democrats and progressive warned the president not to make, least he do great harm to the very population he has said he wants to protect.

Sen. Brown agrees with others that access to tax preferenced retirement accounts must not be something workers receive when they cross the threshold into the middle class – but a tool that helps them start that journey. Expanding the kind of guaranteed annuitized income that Social Security provides to private sector savings is a major concern to Sen. Brown, who has cosponsored a bill with Iowa Sen. Tom Harkin that would do this.

Why is this important? Sen. Brown said that while 50 percent of full time workers participated in an employer sponsored plan, only 13 percent of workers at companies with less than 10 workers participated in an employer sponsored retirement plan.

Now in his second term, having won an expensive and bitter battle for it in 2012, Brown wants to align incentives with need. To do that he wants to encourage private retirement savings through the tax code.

"Our upside-down tax expenditures need to be fixed, and we need to do everything possible to expand access and uptake of private retirement accounts," he said.

The news article Ohio Sen. Brown launches DC push to use tax code for 'myRA' retirement plan appeared first on Columbus Government Examiner.

Share this article

A Buckeye by birth, John Michael Spinelli is a communication professional and former credentialed Ohio Statehouse reporter. His economic development skills and public knowhow from work in the Ohio Senate, the Ohio Public Works Commission and the Office of Ohio Secretary of State give him great latitude and keen insight into current issues. He covered Obama/Romney in Ohio and reported on CGI from Chicago. He also reports at Allvoices where he authors PoliticalPuzzle. ohionewsbureau@gmail.com